CEO discretion, political connection and real earnings management in Nigeria

Armaya'u Alhaji Sani, Rohaida Abdul Latif and Redhwan Ahmed Al-Dhamari

Management Research Review, 2020, vol. 43, issue 8, 909-929

Abstract: Purpose - The purpose of this paper is to examine the influence of CEO discretion on the real earnings management and to explore whether the discretion of the CEO to ensure accurate and reliable financial reports is influenced by the political connection of board members. Design/methodology/approach - Using the generalized method of movement to control the potential endogeneity on the sample of listed companies in Nigeria, the study conducted several checks using Driscoll–Kraay panel data regression with standard error to robust the main findings. Findings - The paper provides evidence that CEO Discretion reduces the tendency of real earnings management and improve the reporting quality. However, the CEO’s discretion to provide reliable financial reports and to reduce the likely earnings manipulation is overturn by the presence of politically connected directors. Originality/value - Existing studies on CEO attributes and earnings management in Nigeria fail to explain why CEOs were involved in corporate financial scandals. This paper suggests that the presence of politically connected directors is what override and upturn the CEO discretion to dwell into real earnings manipulations. Prior studies measured political connection using a dummy variable (Chaneyet al., 2011; Osazuwaet al., 2016;Tee, 2018), this paper measured political connection using the proportion of politically connected directors. This is on the idea that the presence of more politically connected directors may give them the power to override the CEOs decision.

Keywords: Real earnings management; CEO discretion; Politically connected directors; Credible financial reporting; Corporate Governance; CEO expertise (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:mrr-12-2018-0460

DOI: 10.1108/MRR-12-2018-0460

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